The short run Phillips curve illustrates which relationship?

• A. The relationship between interest rates and economic growth
• B. A direct relationship between inflation and unemployment
• C. The relationship between government spending and the budget deficit
• D. An inverse relationship between inflation and unemployment

Answer: (D)

Verified step by step guidance

1. Understand that the Phillips curve is a concept in macroeconomics that shows the relationship between two key variables: inflation and unemployment.
2. Recall that the short-run Phillips curve suggests that when inflation is high, unemployment tends to be low, and when inflation is low, unemployment tends to be high, indicating an inverse relationship.
3. Recognize that this inverse relationship means that as one variable increases, the other decreases, which is a key insight for policymakers balancing inflation and unemployment.
4. Note that the other options (interest rates and economic growth, government spending and budget deficit, direct relationship between inflation and unemployment) do not describe the Phillips curve correctly.
5. Conclude that the short-run Phillips curve illustrates an inverse relationship between inflation and unemployment.